Worcester could face penalties for high health care premiums

WORCESTER — The city will have to find ways to reduce the cost of its health plans for employees and retirees in the coming years or face the prospect of significant penalties under the provisions of Obamacare.

The penalties would be in the form of a new so-called "Cadillac tax" the city would have to pay for having health insurance premiums that exceed the prescribed threshold called for under the federal Patient Protection and Affordable Care Act.

Unless the city is able to get its health premiums below that threshold, it could be subject to taxes as high as $3 million annually, according to city officials.

City Manager Michael V. O'Brien said the city's health insurance expenditures are projected to grow 10 percent next fiscal year, after a 9 percent jump this year — in large part because of new federal and state mandates.

Those mandates, mostly ones called for under Obamacare, are expected to fuel an additional 9.5 percent increase in fiscal year 2016 and 9 percent in fiscal year 2017.

Included in those projections are fees and cost drivers that already affect the city's health plan costs, such as extending coverage for dependents up to age 26. The city previously only covered dependents to age 19 or to age 25 for full-time students.

Also, the city is now required to pay out of its health plan a new "reinsurance fee" of $63 per individual.

That alone has generated an additional cost to the city of about $600,000 annually.

Starting in fiscal year 2015, the city will also have to pay a fee of $1 per insured individual on a health plan offered by the city.

That money is to go into a research fund for the Patient-Centered Outcomes Research Institute.

That fee will double to $2 in fiscal year 2016 and then climb at the rate of medical inflation each subsequent year.

Combined, the fees and extension of health coverage to dependents up to age 26 will total about $1.5 million each fiscal year, compounded annually, in additional health insurance costs, Mr. O'Brien said.

The manager added that the city's health insurance rate projections do not yet recognize the impact of the so-called Cadillac tax that will apply to individual health insurance plans that cost more than $10,200 per year and family plans that cost more than $27,200 annually.

The amount of the tax will be calculated at 40 percent of the excess premium amount.

Most of the city's health plans are projected to exceed the threshold limits under Obamacare in fiscal year 2019, and some will even exceed the limit in fiscal year 2018 when the tax goes into effect on Jan. 1, 2018.

Mr. O'Brien said a preliminary projection shows this new tax will cost the city nearly $1 million in fiscal year 2018 and $3 million in fiscal year 2019.

"The city, like all employers poised to hit these premium rate limits, will be pursuing avenues to reduce our health care premiums to attempt to bring our costs under these thresholds in the coming years," Mr. O'Brien said.

That, in turn, could very likely lead to changes in health plan coverage for employees and retirees.

City officials also emphasized that the Cadillac tax is not included in financial forecasts that have been put together on the impact it will have on the city's "Other Post-Employment Benefits," known as OPEB, for future municipal and public school retirees.

The city's unfunded OPEB liability already stands at $656 million, but with projected increases in city health insurance costs over the next several years that liability is also expected to grow.